Finance
Fact-checked

At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.

Learn more...

What Is House Stock?

Mary McMahon
Mary McMahon
Mary McMahon
Mary McMahon

House stock is stock a brokerage firm maintains in its inventory and has a special relationship with. Brokers may promote the stock to clients of the firm, and the firm may trade in shares as part of its role as a market maker. A breakdown on the holdings of a brokerage and its clients can provide information about which house stock it holds, if any, and how it handles the stock as part of its business operations.

In some brokerages, brokers may receive encouragement from supervisors to traffic in shares of the house stock as much as possible. They have a fiduciary duty to clients and cannot advise bad investment decisions, but may steer buyers toward house stock as a sound investment decision. The firm may receive benefits for high sales volume, including a corresponding increase in the value of its own inventory. This, in turn, will make the house stock a good buy for clients.

Brokerage firms may manage an inventory of a given stock, which is referred to as house stock.
Brokerage firms may manage an inventory of a given stock, which is referred to as house stock.

Brokerages also play an important role in the financial market as market makers. They have the capacity to move large volumes of stock and can influence the price for shares with trading activity. A house stock can be a stock that a brokerage works with as a market maker, under supervision from regulators to make sure the firm does not actively manipulate the market for profit. When companies prepare for new offerings, their underwriters may contact specific brokerages to offer them lots of house stock to sell out the offering and provide brokers with an investment opportunity. This can result in a more friendly relationship, useful for future financial activities.

Clients do not have to accept recommendations from their brokers and can turn down a house stock when the brokerage offers or suggests it. They can also ask for more detailed information to use in decision making. If a broker pushes a stock against the interest of a client or accepts inappropriate compensation for selling stock, she can be legally liable. The client or brokerage may sue for breach of duty.

The laws surrounding brokerage inventory and sale of stocks are complex. Generally, any situation where there is a conflict of interest can be a legal issue. If a broker holds shares of a stock, for example, and knows that their value will increase if a client buys shares of the same stock, this can create a conflict of interest. If the broker profits at the expense of the client by driving prices up to sell her stock at a better price, she may be subject to litigation.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Learn more...
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Learn more...

Discuss this Article

Post your comments
Login:
Forgot password?
Register:
    • Brokerage firms may manage an inventory of a given stock, which is referred to as house stock.
      By: Oleksiy Mark
      Brokerage firms may manage an inventory of a given stock, which is referred to as house stock.